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A Sun Life Financial sign is seen outside of their building before their annual general meeting for shareholders in Toronto May 7, 2014.Mark Blinch/Reuters

Smaller U.S. money managers are getting gobbled up, and Sun Life Financial Inc. is joining in the feast as it fuels its U.S. expansion.

The Toronto-based insurer said Wednesday that it would acquire New York-based Ryan Labs Inc., which oversees $5.1-billion (U.S.) in investments for pension funds and institutions, helping them manage risk with a focus on fixed income strategies.

The deal marks the expansion of Sun Life Investment Management south of the border. The group was launched in Canada about a year ago to offer private market funds in debt, real estate and commercial mortgages to third-party investors. The idea was to attract defined-benefit pension plans that don't have in-house staff teams to manage investments the way it does; its offerings include providing customized investments that generate higher yields than the meagre ones currently available in the public market.

Investment management is an attractive business to insurers and other financial institutions, not only because of the fees third party investors pay out, but also because it helps offset business lines such as life insurance, which require more capital to be held, on their balance sheets. Canadian insurer Manulife Financial Corp. has also expanded its third party asset management business in recent years.

And other global companies have pursued smaller U.S. firms with billions in assets under management in recent months. Private equity fund Securian Financial Group took a stake in Asset Allocation and Management Company of Chicago in late November, for example. A month earlier, BNY Mellon Corp. bought fixed income-focused Cutwater Asset Management.

So far, Sun Life Investment Management has only been active in Canada, where it has four or five investment agreements with clients worth about $300-million. But attracting clients in the U.S. without the benefit of a household-name brand is a bigger challenge for Sun Life.

"We don't have the same market position in the U.S. that we do in Canada," said Steve Peacher, who is both CIO of Sun Life Financial and head of Sun Life Investment Management.

But Peter Routledge, analyst with National Bank Financial, said Sun Life can directly make use of its Canadian experience, and he said the small acquisition has significant potential. "In Ryan Labs, Sun Life obtains a gateway into the U.S. market to expand on an area of expertise from its Canadian operations, liability driven investing," he wrote in a note to clients.

"We are mindful of the many State and corporate pension funds with growing liabilities (as retirees live well beyond previous projections) that are grappling with reinvesting assets at today's low interest rate levels," Mr. Routledge said. He added that Sun Life would likely make additional purchases in the U.S. focusing on liability-driven investments and health care.

Both Sun Life and Ryan Labs executives say more pension funds will shift assets towards fixed income in the coming years, as yields recover.

"If we get a sustained rise in rates, we think the potential here for these types of products and investment management services is just going to explode. And we want to be in position for it," Mr. Peacher said.

Ryan Labs will operate independently for now, but over time Sun Life hopes to offer Ryan Labs' clients access to the private fixed income asset classes and commercial mortgages that have attracted Sun Life clients in Canada.